FSA deals blow to landbankers

The chief City regulator has forced another landbanking company to shut its doors, leaving hundreds of investors with land worth a fraction of the price they paid.

Guildford-based Rubicon Estates, which bought fields at farmland prices and then sold small plots to investors at higher prices in the expectation of valuable planning permission being granted within "five to 20 years", has ceased trading following a Financial Services Authority enquiry. Its office is now empty and its website, which once promised a route to riches, has been taken down. The company is now in discussions with liquidators.

The watchdog wrote to Rubicon, which sold plots near Cambridge and Maidstone, to ask if it was a "collective investment" - which must be regulated. Land sales are not normally regulated by the FSA but if the seller organises new owners - typically to submit planning applications and then sell the plots to developers - then the FSA rates this as a collective investment.

Earlier this month, the FSA issued consumer advice on landbanking for the first time. It told potential investors that anyone investing in an unauthorised collective scheme has a statutory right to a refund and compensation for consequent losses.

A former Rubicon employee says: "We were aware of the collective investment rules so we took legal advice. Our solicitors said it would not be a collective if we set up an independent management company for our investors that they would own and control. We followed this opinion, putting a substantial sum into this."

One investor who put in £40,000 is angry. "While I accepted the risk of not getting planning permission, we were assured this was all legally watertight. My plots are worthless on their own. What do we do now?" he says.

One possible solution is for an investor to persuade other owners to join a co-operative concern. The FSA says: "We offer guidance on what constitutes a collective investment. It is up to companies to take a view. Offering an unauthorised collective investment could be a criminal offence under section 19 of the Financial Services and Markets Act."

Rubicon managing director Chris Comer says: "We received an FSA letter which gave us a week in which to reply. We decided the most responsible course of action is to cease all sales."

Rubicon has until next Wednesday to send accounts to Companies House.

Other landbanking companies which have shut following FSA action include United Land Holdings and Land Heritage UK. The latter is in liquidation with a £4m gap between its assets and what it took in from investors.